Three main questions typically face the manager or executive who is considering the use of prepaid cards:
What exactly is a prepaid card?
A prepaid card, or general purpose reloadable (GPR) card, is a Visa or MasterCard branded card that can be loaded or topped up with funds and used similarly to a credit card or debit card. Often with the word "debit" printed prominently on the front of the card, prepaid cards can be used to make payments similar to debit cards and are becoming the foundation of a second tier banking system.
Gift cards are loaded once, non-reloadable, and can't be topped up ever. The only cost is the fee to purchase the gift card. Gift cards can only be used at one retail chain, but never at an ATM or other places where Visa and MasterCard are accepted. Furthermore, gift cards cannot be used to transfer money to family and friends overseas. Because gift cards can be purchased anonymously, no customer information, credit check, or good credit history are required.
Differences Between Card Types
- Provides you with a line of credit, so you are actually borrowing money from the card issuer.
- Always linked to an actual bank account, sometimes with overdraft facility.
- You can only spend the money you've (re)loaded onto the card. Bank account is optional. Not borrowing money.
- Loaded only once at the time of purchase, and can never again be reloaded or topped up.
- Can help to build credit since your deposits (like a debit card) act as collateral in case you don't pay your balance (like a credit card).
All that is required to obtain a prepaid card is some limited identification to prove whom the cardholder is. But credit card and debit card applications always require full customer information. Furthermore, credit checks are always performed, and a good credit score is required in order to obtain a credit card or debit card. On the other hand, credit checks are not performed because credit score does not matter in obtaining a prepaid card.
Because prepaid cards are associated with one of the major card networks, e.g. Visa, MasterCard, American Express, or Discover, prepaid cards can be used at any ATM or location where a major card can be.
A prepaid card looks just like a typical credit card or debit card, and possesses an account number, routing number, signature strip, and company branding. But prepaid cards are unlike credit cards, which provide a line of credit. Whereas using a credit card is receiving a loan to make a purchase, using a prepaid card is using the cardholder's own money that was already put on the card.
Additionally, prepaid cards are very different from debit cards that are linked to a bank account with an overdraft facility, because you can't borrow money with a prepaid card - you can only spend the money you have loaded onto it.